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How Will Food Safety Legislation Affect Corn and Soybean Growers?

Source: University of Illinois farmgate | Nov 30, 2010

Today, Nov. 30, the U.S. Senate is scheduled to consider the implementation of legislation that would allow the U.S. Food and Drug Administration (FDA) to enact food product recalls in the case of tainted food that might be seen as a health threat. The same legislation is expected to be considered in the U.S. House of Representatives in early December. What are the ramifications of food traceability, product recalls, industry reputation and food safety legislation?

The proposed legislation has had some close cousins that have seen great controversy. Country of Origin Labeling (COOL) was debated for a decade before being passed, but then implementation was shelved for several years until it was applied to produce, meat and seafood. The National Animal Identification System (NAIS) was proposed for implementation following the Mad Cow episode in 2003 as a means of tracing livestock movement. After great angst within the livestock industry, NAIS was withdrawn to a backburner position at USDA.

At issue now is legislation that will have greater impact on the food processor than the producer, however, some smaller producers of fruits and vegetables will be bundled into the recall process and that has drawn some concern within the agriculture community. The evaluation of the concept comes from agricultural economists Sebastien Pouliot of Iowa State and Daniel Sumner of the University of California. They report that food safety is a recurring headline this fall with a recall of a half billion eggs, and many other recent products including tomatoes, spinach, and fresh fruits, all of which have been voluntary. However the melamine-tainted pet food from China raises the issue of imported food being part of recalls.

National traceability system?

Adding to the debate has been a Presidential Commission recommending a national traceback system for food safety because some products are marketed without labels, others are produced by small suppliers, some products are mixed in the supply chain, and the health of consumers can decline in short order. The economists point to the 2006 problem with spinach, in which it was not possible to identify the originating farm for the tainted spinach. At that point the FDA advised consumers to not each spinach and store pulled all of their spinach from sale, regardless of its origin. Similarly, a 2009 test of a sample of pistachios found salmonella, and although it could not be found in other samples, consumers were warned to not eat pistachios regardless of their origin. Pistachios are still trying to restore public confidence and sales. The economists contend that an entire industry distributing a homogeneous product can suffer because of problems with one producer or production plant.

The economists created a proposal in which a food producer could continue to produce and sell a product in a second sales period, if the products met quality and traceability standards in an initial sales period. If the traceability is not successful, then all producers who are potential violators would have their products withdrawn in an industry-wide recall. The ag economists say, “Increased traceability protects the reputation of an industry from randomly occurring incidents by isolating the product from firms that were the source of the problem.”

Traceability and the crop producer

The researchers say several things will happen with the food traceability proposal:

1) A producer may see revenue decline when food is safer, because buyers react mildly to food safety incidents because with less food on the market after a recall prices will increase.

2) The revenue and profitability of individual producers will not be the same as the entire industry because they may take different levels of food safety than the entire industry.

3) If an industry uses traceability to encourage food safety, it cannot increase industry profits by using more traceability to induce producers to reduce food safety. They say that increased traceability induces individual producers to improve their safety above the level the industry would chose, and the industry would not rise to meet the higher standard.

4) The increased traceability may cause the industry to raise its standards when some producers decline in their standards. They report the industry may want to increase the degree of traceability, even when individuals exceed standards.

Summary

Food safety legislation may occur quite soon with its current Congressional schedule. In studying the issue, researchers say increased traceability protects the reputation of an industry from randomly occurring incidents by isolating the product from firms that were the source of the problem. The expected revenue of a competitive firm depends on the probability that other firms have delivered unsafe products in an earlier period, the probability that unsafe products are traced to their origins, and the reaction of buyers to the discovery of unsafe products. Increased traceability changes the incentives for individual firms to supply safe products.